國際金融資本預算以貨幣風險ppt課件

1、International FinanceTodayCapital Budgeting (international style)Financing (international style)TopicsExchange ratesCurrency riskManaging Currency RiskCapital Budgeting w/ currency riskFinancing w/currency riskExchange RatesSpot Rate The price of a currency for immediate delivery (i.e. todays exchan

2、ge rate)Forward Rate The price of a currency on a specified future date (i.e. a forward contract in which the exercise price is the exchange rate)Futures - Same as forward (w/secondary markets)Options - on exchange rates & Future KsExchange RatesExample German mark spot price is M1.4457 per $1 Germa

3、n mark 6 mt forward price is M1.4282 per $1 The Mark is selling at a Forward Premium The Dollar is selling at a Forward DiscountThis means that the market expects the dollar to get weaker, relative to the markExample (premium? discount?)The Japanese Yen spot price is 101.18 per $1The Japanese 6mt fw

4、d price is 103.52 per $1Exchange RatesExampleWhat is the Mark premium (annualized)?Exchange RatesExampleWhat is the Mark premium (annualized)?Mark Premium = 2 x ( 1.4457 - 1.4282) = 2.45% 1.4282Dollar Discount = 2.45%Exchange RatesExampleWhat is the Mark premium (annualized)?Mark Premium = 2 x ( 1.4

5、457 - 1.4282) = 2.45% 1.4282Dollar Discount = 2.45%ExampleWhat is the Yen discount (annualized)?Exchange RatesExampleWhat is the Mark premium (annualized)?Mark Premium = 2 x ( 1.4457 - 1.4282) = 2.45% 1.4282Dollar Discount = 2.45%ExampleWhat is the Yen discount (annualized)?Yen Discount = 2 x ( 103.

6、52 - 101.18) = 4.26% 103.52Dollar Premium = 4.26%Exchange Rates1) Interest Rate Parity Theory1 + rf = Ff/$1 + r$ Sf/$ The difference between the risk free interest rates in two different countries is equal to the difference between the forward and spot ratesExchange RatesExampleYou are doing a proje

7、ct in Germany which has an initial cost of $100,000. All other things being equal, you have the opprtunity to obtain a 1 year German loan (in marks) 8.0% or a 1 year US loan (in dollars) 10%. The spot rate is 1.4457dm:$1 The 1 year forward rate is 1.4194dm:$1Which loan will you prefer and why? Ignor

8、e transaction costsExchange RatesExampleYou are doing a project in Germany which has an initial cost of $100,000. All other things being equal, you have the opprtunity to obtain a 1 year German loan (in marks) 8.0% or a 1 year US loan (in dollars) 10%. The spot rate is 1.4457dm:$1 The 1 year forward

9、 rate is 1.4194dm:$1Which loan will you prefer and why? Ignore transaction costsCost of US loan = $100,000 x 1.10 = $110,000Exchange RatesExampleYou are doing a project in Germany which has an initial cost of $100,000. All other things being equal, you have the opprtunity to obtain a 1 year German l

10、oan (in marks) 8.0% or a 1 year US loan (in dollars) 10%. The spot rate is 1.4457dm:$1 The 1 year forward rate is 1.4194dm:$1Which loan will you prefer and why? Ignore transaction costsCost of US loan = $100,000 x 1.10 = $110,000Cost of German Loan = $100,000 x 1.4457 = 144,570 dm exchange Exchange

11、RatesExampleYou are doing a project in Germany which has an initial cost of $100,000. All other things being equal, you have the opprtunity to obtain a 1 year German loan (in marks) 8.0% or a 1 year US loan (in dollars) 10%. The spot rate is 1.4457dm:$1 The 1 year forward rate is 1.4194dm:$1Which lo

12、an will you prefer and why? Ignore transaction costsCost of US loan = $100,000 x 1.10 = $110,000Cost of German Loan = $100,000 x 1.4457 = 144,570 dm exchange 144,570 dm x 1.08 = 156, dm loan pmt Exchange RatesExampleYou are doing a project in Germany which has an initial cost of $100,000. All other

13、things being equal, you have the opprtunity to obtain a 1 year German loan (in marks) 8.0% or a 1 year US loan (in dollars) 10%. The spot rate is 1.4457dm:$1 The 1 year forward rate is 1.4194dm:$1Which loan will you prefer and why? Ignore transaction costsCost of US loan = $100,000 x 1.10 = $110,000

14、Cost of German Loan = $100,000 x 1.4457 = 144,570 dm exchange 144,570 dm x 1.08 = 156, dm loan pmt 156, dm / 1.4194 = $110,000exchangeIf the two loans created a different result, arbitrage exists!Exchange Rates2) Expectations Theory of Forward Rates Ff/$ = E (Sf/$) Sf/$ Sf/$The difference between th

15、e forward & spot rates equals the expected change in the spot rate.Exchange Rates3) Law of One Price (Purchasing Power Parity) E (Sf/$) = E ( 1 + if ) Sf/$ E ( 1 + i$ )The expected change in the spot rate equals the expected difference in inflation between the two countries.Exchange RatesExampleGive

16、n a spot rate of dm:$ 1.4457:$1Given a 1yr fwd rate of 1.4194:$1If inflation in the US is forecasted at 4.5% this year,what do we know about the forecasted inflation rate in Germany?Exchange RatesExampleGiven a spot rate of dm:$ 1.4457:$1Given a 1yr fwd rate of 1.4194:$1If inflation in the US is for

17、ecasted at 4.5% this year,what do we know about the forecasted inflation rate in Germany? E (Sf/$) = E ( 1 + if ) Sf/$ E ( 1 + i$ ) Exchange RatesExampleGiven a spot rate of dm:$ 1.4457:$1Given a 1yr fwd rate of 1.4194:$1If inflation in the US is forecasted at 4.5% this year,what do we know about th

18、e forecasted inflation rate in Germany? E (Sf/$) = E ( 1 + if ) Sf/$ E ( 1 + i$ ) 1.4194 = E( 1 + i) 1.4457 1 + .045Exchange RatesExampleGiven a spot rate of dm:$ 1.4457:$1Given a 1yr fwd rate of 1.4194:$1If inflation in the US is forecasted at 4.5% this year,what do we know about the forecasted inf

19、lation rate in Germany? E (Sf/$) = E ( 1 + if ) Sf/$ E ( 1 + i$ ) solve for i 1.4194 = E( 1 + i) i = .026 or 2.6%1.4457 1 + .045Exchange Rates4) Capital Market EquilibriumE ( 1 + if ) = 1 + rf E ( 1 + i$ ) 1 + r$ The expected difference in inflation rates equals the difference in current interest ra

20、tes.Also called common real interest ratesExchange RatesExampleIn the previous examples, show the equilibrium of interest rates and inflation rates1 + rf = 1.08 = .98181 + r$ 1.10Exchange RatesExampleIn the previous examples, show the equilibrium of interest rates and inflation rates1 + rf = 1.08 =

21、.98181 + r$ 1.10E ( 1 + if ) = 1.026 = .9818E ( 1 + i$ ) 1.045Exchange RatesApplicationsQ: What does it mean to a business if the dollar is trading at a forward premium?Exchange RatesApplicationsQ: What does it mean to a business if the dollar is trading at a forward premium?A: Stronger purchasing p

22、owerExchange RatesExampleHonda builds a new car in Japan for a cost + profit of 1,715,000 yen. At an exchange rate of 101.18:$1 the car sells for $16,950 in Baltimore. If the dollar rises in value, against the yen, to an exchange rate of 105:$1, what will be the price of the car?Exchange RatesExampl

23、eHonda builds a new car in Japan for a cost + profit of 1,715,000 yen. At an exchange rate of 101.18:$1 the car sells for $16,950 in Baltimore. If the dollar rises in value, against the yen, to an exchange rate of 105:$1, what will be the price of the car?1,715,000 = $16,333 105Exchange RatesExample

24、Honda builds a new car in Japan for a cost + profit of 1,715,000 yen. At an exchange rate of 101.18:$1 the car sells for $16,950 in Baltimore. If the dollar rises in value, against the yen, to an exchange rate of 105:$1, what will be the price of the car?1,715,000 = $16,333 105Conversely, if the yen

25、 is trading at a forward discount, Japan will experience a decrease in purchasing power.Exchange RatesExampleHarley Davidson builds a motorcycle for a cost plus profit fo $12,000. At an exchange rate of 101.18:$1, the motorcycle sells for 1,214,160 yen in Japan. If the dollar rises in value and the

26、exchange rate is 105:$1, what will the motorcycle cost in Japan?Exchange RatesExampleHarley Davidson builds a motorcycle for a cost plus profit fo $12,000. At an exchange rate of 101.18:$1, the motorcycle sells for 1,214,160 yen in Japan. If the dollar rises in value and the exchange rate is 105:$1,

27、 what will the motorcycle cost in Japan?$12,000 x 105 = 1,260,000 yen (3.78% rise) Currency RiskCurrency Risk can be reduced by using various financial instrumentsCurrency forward contracts, futures contracts, and even options on these contracts are available to control the riskCurrency RiskExampleY

28、our US company is building a plant in Germany. Your cost will be 2,000,000 dm, with full payment due in 6 months. You are concerned about currency risk. The spot rate is 1.4397dm:$1 and the 6 mt forward rate is 1.4350dm:$1. How can you eliminate the currency risk? How does this help in evaluating th

29、e project? Currency RiskExampleYour US company is building a plant in Germany. Your cost will be 2,000,000 dm, with full payment due in 6 months. You are concerned about currency risk. The spot rate is 1.4397dm:$1 and the 6 mt forward rate is 1.4350dm:$1. How can you eliminate the currency risk? How

30、 does this help in evaluating the project?Since you are long in dollars, you should short dm contracts Currency RiskExampleYour US company is building a plant in Germany. Your cost will be 2,000,000 dm, with full payment due in 6 months. You are concerned about currency risk. The spot rate is 1.4397

31、dm:$1 and the 6 mt forward rate is 1.4350dm:$1. How can you eliminate the currency risk? How does this help in evaluating the project?Since you are long in dollars, you should short dm contracts2,000,000dm / 1.4350 = $1,393,728 worth of 6mt dm Ks.Currency RiskExampleYour US company is building a pla

32、nt in Germany. Your cost will be 2,000,000 dm, with full payment due in 6 months. You are concerned about currency risk. The spot rate is 1.4397dm:$1 and the 6 mt forward rate is 1.4350dm:$1. How can you eliminate the currency risk? How does this help in evaluating the project?Since you are long in

33、dollars, you should short dm contracts2,000,000dm / 1.4350 = $1,393,728 worth of 6mt dm Ks.This will lock in your Co cash flow at $1,393,728Currency RiskExampleYour US company is building a plant in Germany. Your cost will be 2,000,000 dm, with full payment due in 6 months. You are concerned about c

34、urrency risk. The spot rate is 1.4397dm:$1 and the 6 mt forward rate is 1.4350dm:$1. How can you eliminate the currency risk? How does this help in evaluating the project?Since you are long in dollars, you should short dm contracts2,000,000dm / 1.4350 = $1,393,728 worth of 6mt dm Ks.This will lock i

35、n your Co cash flow at $1,393,728The forward premium paid is 0.33% (using capital market equilibrium, this premium probably equals the inflation rate. Capital BudgetingTechniques1) Exchange to $ and analyze2) Discount and then exchange3) Choose a currency standard ($) and hedge all non dollar CF Exa

36、mpleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot

37、rate is 2.0g:$1.year 12345 400450510575650ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is fo

38、recasted at 5% per year and the current spot rate is 2.0g:$1.year 12345 400450510575650Q: What are the 1, 2, 3, 4, 5 year forward rates?ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in gui

39、lders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is 2.0g:$1.year 12345 400450510575650Q: What are the 1, 2, 3, 4, 5 year forward rates?A: E (Sf/$) = E ( 1 + if )t solve for E(S) Sf/$ E ( 1 + i$ )t ExampleO

40、utland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate

41、is 2.0g:$1.year 12345 400450510575650Q: What are the 1, 2, 3, 4, 5 year forward rates?A: E (Sf/$) = E ( 1 + if )t solve for E(S) Sf/$ E ( 1 + i$ )t E(S) 2.022.042.062.082.10ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is ex

42、pected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is 2.0g:$1.year 12345 400450510575650Q: Convert the CF to $ using the forward rates. 12345CFg 400450510575650ExampleOut

43、land Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is

44、 2.0g:$1.year 12345 400450510575650Q: Convert the CF to $ using the forward rates. 12345CFg 400450510575650E(S)2.022.042.062.082.10ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders

45、 ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is 2.0g:$1.year 12345 400450510575650Q: Convert the CF to $ using the forward rates. 12345CFg 400450510575650E(S)2.022.042.062.082.10CF$198221248276310ExampleOut

46、land Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US risk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is

47、 2.0g:$1.year 12345 400450510575650What is the PV of the project in dollars at a risk premium of 7.4%?ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to sell in that country. The plant is expected to produce a cash flow (in guilders ,000s) as follows. The US ri

48、sk free rate is 8%, the Dutch rate is 9%. US inflation is forecasted at 5% per year and the current spot rate is 2.0g:$1.year 12345 400450510575650What is the PV of the project in dollars at a risk premium of 7.4%?$ discount rate = 1.08 x 1.074 = 1.16 PV = $794,000ExampleOutland Corporation is building a plant in Holland to produce reindeer repelant to se